Intel outlook beats Street, tablet caution lingers

Intel Corp's revenue and margin forecasts beat expectations on healthy technology spending, defying worries about the chipmaker's minor role in the booming smartphone and tablet market.

Shares in the world's largest chipmaker gained 2.7 percent after its forecast for first-quarter revenue and gross margin surpassed expectations, driven by hopes for strong sales of its cutting-edge Sandy Bridge microprocessors.

The expectation was there might be a miss. There is a lot of concern over smartphones and tablets, but that will take a backseat in the meantime, said Mahesh Sanganeria, an analyst at RBC Capital Markets.

Despite an apparent early success with Sandy Bridge, Intel faces sluggish personal computer sales and a major challenge from the exploding popularity of mobile devices, a market dominated by Britain's ARM Holdings.

Intel's processors are the brains in 80 percent of the world's PCs but the company has yet to make its mark in mobile gadgets that people increasingly depend on to surf the Web and update their social networking profiles.

Right now there's just a larger overhang over the stock when it comes to tablets and smartphones. That may be an area where investors are more cautious, said Patrick Wang, an analyst at Wedbush Securities.

But for the shorter term, many investors are betting on a bump in revenue growth from the chip giant's newest product line, considered one of the most important advances in computer processing power. Intel unveiled its Sandy Bridge microchip last week.

It seems to be getting widespread acceptance from the customers. Even with the consumer market being a little bit weak we expect it to ramp sales nicely in Q1, Chief Financial Officer Stacy Smith told Reuters.

BY THE NUMBERS

Intel posted an 8 percent increase in fourth-quarter revenue and forecast revenue of $11.1 billion to $11.9 billion in the first three months of 2011.

The fourth-quarter revenue slightly exceeded the $11.37 billion expected by analysts, according to Thomson Reuters I/B/E/S. Analysts, on average, had expected revenue of $10.73 billion in the first three months of 2011.

Intel had a record gross margin of 67.5 percent in the fourth quarter, compared to 66.7 percent expected by analysts.

It forecast a gross margin of 64 percent in the current quarter, plus or minus two percentage points. Analysts had forecast a first-quarter gross margin of 63.5 percent.

Intel said net income totaled $3.4 billion, or 59 cents a share, in the fourth quarter, compared with 53 cents per share expected by analysts.

Major technology companies are expected to keep up sales and profit growth in 2011, but economic troubles in the United States and Europe could temper their results.

Shares of Intel rose 2.7 percent in after-hours trading, after closing down 0.06 percent at $21.29 on Nasdaq.